BaFin and Deutsche Bundesbank share the view of the IDW that the current situation does not lead to an undifferentiated, automatic transfer of financial instruments from Stage 1 to Stage 2 or even Stage 3.

The IDW is of the view that an automatic transfer could lead to the economic risks being significantly overstated. The transfer between Stages is based on the consideration of reasonable and supportable forward-looking information, the effects of which on the credit risk is derived from past experience. However, such a dynamic globally extreme situation is unprecedented. This leads to extreme estimation uncertainty; BaFin and shares the view that this requires the appropriate exercise of discretionary leeway.

Based on the following statement, which was coordinated with the German Federal Ministry of Finance (Bundesfinanzministerium – BMF) and BaFin, it is the view of the IDW that stabilisation measures mean that an undifferentiated, automatic transfer between Stages is not appropriate even for reporting dates after 31 March 2020:

“In view of the Corona crisis, the Federal Government as well as the Bundestag and Bundesrat have adopted far-reaching support programmes for companies operating in the economy. For the expected duration of the crisis, this will not only reduce ongoing cost burdens through moratoria, deferrals etc., but will also directly strengthen liquidity and, if necessary, capital, in order to compensate as far as possible for corona-related disruptions in the functioning of the affected companies. At the same time, this improves the companies’ ability to service their debts to their banks and avoids a significant increase in default risks.”

BaFin and Deutsche Bundesbank share this view. It is to be expected that banks will incorporate current and future findings into their customary processes.

The complete IDW technical note can be accessed at: https://www.idw.de/idw/im-fokus/coronavirus (only in German).